US pre-open: Markets to inch lower on fears over China, Treasury yields

Stocks on Wall Street were set to open lower on Friday, on the back of fears of an overflowing financial crisis in China and further monetary tightening in the US.

The Dow Jones Industrial Average was pointing to a 0.1% fall in pre-market trade, the Nasdaq was down 0.2% while the S&P 500 slipped 0.1%. This comes after the latter closed Thursday’s session at its lowest level since late-June.

China Evergrande, the heavily indebted property group and once the country's second developer, filed for chapter 15 bankruptcy in New York – allowing it to protest its assets in the US as it works to restructure its debt and renegotiate with its creditors.

The Guangzhou-based group, which is thought to hold over $300bn in debt, defaulted on its repayments back in 2021, prompting a string of defaults at other building companies.

The latest news – just days after Country Garden told investors it could register a loss of $7.6bn in the first half of 2023 as it struggles to make its own bond repayments – will raise concerns about contagion to the wider financial services sector.

Meanwhile, US Treasury yields were coming back down after strong gains on Thursday, when 10-year yields hit a 15-year high and 30-year yields reached a decade high. Stronger-than-expected economic data earlier in the week have prompted fears about further tightening of monetary policy.

“The relative strength of the US economy is prompting fears of rates sticking higher for longer across the Atlantic and a potential shift from the current easing of inflationary pressures. This is reflected in a big surge in US government bond yields,” explained AJ Bell investment director Russ Mould.

In other news, trading is expected to be volatile on Friday as stock option contracts with a notional value of $2.2trn will expire, according to Dow Jones.

In company movements, shares in Keysight Technologies dropped after the closing bell on Thursday despite the electronic design and test solutions company beating forecasts with third-quarter earnings, as it disappointed investors with a weak forecast for the fourth quarter.

Cloud software group Bill Holdings also fell on weaker-than-expected guidance for its fiscal first quarter. Fourth-quarter losses were less than expected, however.